The present invention is directed to a system for interchange of data and information for members of the real estate finance and related transactional services industry implemented over a network such as the Internet or one or more intranets. The system allows participants in the real estate finance and related transactional services industry to access and supply to each other data, information, and news concerning particular transactions, services offered, or other circumstances of concern to such participants via a central computer system.
Typically, when a homebuyer needs a home loan, the homebuyer or his or her representative applies directly with a lender or goes to a loan broker to assist in applying for the loan. The broker will submit the loan application to one or more lenders, with the limitation that the broker usually can only submit loan applications to lenders with which he is approved. But, before the homebuyer completes a loan application, one type of which is known in the industry as a “1003”, the lender or broker usually prequalifies the borrower.
Prequalification occurs before the borrower completes a loan application to insure that the borrower is not wasting his own time, the broker's time, or the lender's time by completing a 1003 that the lender ultimately will not approve. The prequalification is generally simple mathematical calculations used to determine two qualifying ratios, called front-end and back-end ratios, which are considered relative to the borrower's credit report and employment history. The front-end ratio is calculated by taking the borrower's proposed monthly mortgage payment (which includes first mortgage principal and interest, other mortgage principal and interest, hazard insurance taxes, and any mortgage insurance, any association dues, and other primary housing expenses—known as PITI) divided by his monthly income. The back-end ratio is calculated by adding a percentage (typically 5%) of the borrower's monthly revolving debt and the full amount of all installment debt plus any other non-primary housing related expense—to the PITI and dividing the sum by borrower's monthly income. The acceptable front and back-end ratios, while relatively standard, can vary from lender to lender. Even though the mathematical calculations are rudimentary, many homebuyers are neither familiar with the calculations nor with a lender's acceptable ratios.
If the homebuyer meets the general prequalification criteria, he or she then proceeds to the next step in procuring a loan, which is supplying the lender with the loan application details required by the 1003. After completing, signing, and forwarding the 1003 to a lender, the lender normally requires the applicant to supply additional documentation to support the information written on the loan application. The type of supporting documentation required is dictated by the lending guidelines established by the lender. An example of a lending guideline would be the lender's willingness to accept the applicant's stated income on the 1003 without further proof, if the percentage of the loan amount to the appraised value of the home, known as the loan-to-value or LTV, is eighty percent or lower. If the LTV is greater than eighty percent, then a lender might require the applicant to supply his last two years of tax returns to support the stated income on the 1003. Other examples of documents typically required by a lender to accompany the 1003 are a credit report, an appraisal, a title report and title insurance, escrow instructions, verifications of employment and deposits and/or assets, mortgage insurance and flood insurance, private mortgage insurance, and mortgage insurance premium.
All these documents are given to the lender and comprise an applicant's loan application file. The lender then reviews the loan application file, called underwriting the loan application file. If the contents of the loan application file satisfy all of the lender's guidelines, the lender approves the loan, has loan documents prepared for execution, which then become part of the loan application file, and finally funds the loan.
Distribution of Pricing and Loan Program Information
To determine a borrower's proposed monthly principal and interest payment for the purposes of prequalification and ultimately approval of the loan, an interest rate for the loan must be known. While a lender knows what its own interest rates are for its various loan programs, the broker on the other hand must receive a written document from the lender that includes the loan programs and the corresponding interest rates (“rate sheets”). A wholesale rate sheet, which is distributed to brokers, may be different from the lender's consumer direct/retail rate sheet in that the wholesale rate sheet may set forth a range of rates for the same loan program. Depending on which rate the broker offers to the borrower, the broker may receive a fee from the lender, borrower or both. For example, if a broker offers a borrower an interest rate of 8.250% instead of 8.00%, the lender might give the broker a commission of 0.125% of the loan amount for selling a higher interest rate.
Before the ubiquitous use of fax machines, lenders did not have a method to distribute on a daily basis its rate sheets to all of its approved brokers. Normally, in such times rate sheets were sent by mail, which took several days to reach brokers. Nowadays a lender relies primarily on the daily fax broadcasting of a several page rate sheet to hundreds and sometimes thousands of its approved brokers in a state or across the nation. The broker on the receiving end receives tens of pages of rate sheets, sometimes even more, from all of its lenders.
Fax broadcasting is extremely costly and inefficient for both the lenders and brokers. The cost of fax broadcasting for a lender can easily range from thousands, to tens of thousands of dollars a month, depending on its number of brokers. After broadcast faxing a rate sheet, the lender has no way of knowing whether a broker is even viewing the rate sheet, unless the broker submits a loan application or calls the lender regarding the rate sheet. If the lender makes a mid-day rate change, the broker has no way of knowing of the change unless the broker happens to be in front of the fax machine and comparing the new rate sheet with the previous rate sheet.
From a broker's perspective, fax broadcasting of rate sheets is also troublesome, costly, and inefficient. When the broker receives the faxed rate sheets from all its lenders, the broker typically makes several copies of all the rate sheets to distribute to its own loan agents, also known as loan originators. Receiving an overwhelming number of faxed rate sheets costs the broker in fax machine toner, fax paper, copier toner, and copy paper, not to mention that the broker and/or loan agents might not be at the office to receive the fax or the fax is illegible.
Lenders have begun trying alternatives to fax broadcasting, which themselves have inherent inefficiencies. Many lenders have implemented Fax-on-Demand systems whereby its approved brokers are able to request a fax copy of the rate sheets by dialing from the broker's own fax machine a special telephone number and broker identification number. Fax-on-Demand could reduce the number of broadcast faxes, but it has not necessarily done so. Lenders typically still fax broadcast the rate sheets. Brokers use the Fax-on-Demand when they are not at their own office and need a rate sheet sent to another fax machine, or if the broadcasted fax is illegible or has been misplaced. With Fax-on-Demand, lenders however can determine which brokers have actively requested the rate sheet. Fax-on-Demand is also problematic because it requires brokers to keep track of a different fax number for each lender. Such numbers can get lost or may not be available, if for example a broker is working outside his or her regular office.
With the advent of email, lenders looked at this medium as a way to reduce the cost of distributing rate sheets. The inherent problem with email is apparent to anyone that has received several emails with large file attachments. The prospect of receiving more than twenty emails, each with an attachment of three to ten pages of text and graphics is unacceptable to most brokers. A broker would spend tens of minutes waiting to download each email, then would have to open either a word-processing software, spreadsheet software, or whatever other type of software application required to read the file that the lender sent. Similar to receiving a fax, the broker would either need to make copies of the rate sheet, print several copies of the rate sheet, or email the attachments to its loan agents, who would encounter all of the same problems that the original email recipient had.
While some lenders have started posting rate sheets on their own broker websites, most such websites are limited in scope, and are barely more than advertisements for the lender. Even today, no lender has developed a business to business website for comprehensively dealing with wholesale mortgage brokers.
Lender websites for brokers are as problematic for the broker as receiving emails. Brokers do not want to go to twenty or more websites each day to view, download, or print rate sheets. There are many problems with doing so. For example, each of these lender's broker websites has a unique URL (web address). These web addresses are not necessarily intuitive. For example, Countrywide, which is a national wholesale lender, does not use www.countrywidewholesale.com but uses www.cwbc.com. As another example of a problem, each lender with its own broker website requires the broker to remember a unique user name and password. Brokers that are not at their own computer, and have not bookmarked the web addresses, and/or do not have their username and passwords written in front of them, have a difficult time remembering how to get into each of their lenders' websites.
There are some websites that are not operated by either lenders or brokers. At these websites a broker can type in the criteria of the loan he or she is looking for and the search query will generate a listing of some lenders that fund the type of loan with the corresponding interest rate. Such website systems that generate a lender list in response to a loan criteria query are disadvantageous in many respects. First, a rate sheet must be obtained from a lender. Since rate sheets are not necessarily available from a lender in electronic form or in an electronic form that is compatible with a system, a data processor must manually input the data into a searchable database. The manual inputting process may be prone to errors or omissions. Furthermore, the lender may not have authorized reproduction and use of the rate sheet. In addition, the lender found in the search might not even lend in the geographical location that the property is located. Still further, the broker who searches the database might not even be approved with a lender who meets the search criteria. And similarly from the broker's perspective, there is no mechanism in such systems to focus its loan agents on certain lending parties it may have special relationships with. Loan agents work inefficiently in that they are exposed to lenders that their brokers may not have authorized them to deal with. More simply put, the third party websites take control away from lenders and brokers as to how their loan programs are characterized, updated, and presented. Because of such disadvantages and problems, many lenders may opt out of such systems. Any broker or loan agent can pay for the service, so a brokerage firm does not have control over which of its own loan agents have access to its lender's rate sheets, thus taking control away from the owners of the brokerage firm.
Submission of 1003 and Rate Locking
Prior to personal computers, prequalification calculations were done either by hand or on handheld calculators, loan applications were completed by either hand-writing or typing the information, and underwriting the loan application files was done completely by human evaluation and calculation. During the past few years personal computers, through the use of loan origination software such as Genesis, Contour, and Byte have made the process of prequalifying an applicant and completing a 1003 more efficient. For example, a broker could type the applicant's debt and income values into predefined fields in a software application, to quickly prequalify the applicant. Then the broker could type the information required on a 1003 into predefined fields in a software application, which the broker could store for future use or completion, to view on the computer monitor, and to print for the borrower's signature, and ultimately forward to the lender. Normally, the broker would fax or overnight a completed 1003 to the lender for conditional approval. The lender has a data processor re-type the data of the 1003 into its own loan processing software, reviews the content of the 1003, compares it against its lending guidelines (which may be guidelines dictated by an investor), and then tells the broker which additional documents are required to support the stated information on the 1003. The broker would then fax to the lender a completed rate lock form, which would secure for the applicant the desired interest rate and loan program for a specified period of time. This entire process would take place via fax and/or mail courier services.
With the advent of the modem and the Internet, a broker could forward the completed 1003 in digital format through the dedicated telephone lines or through the Internet to the lender to be downloaded by the lender to be printed. The lender would then would take the printed 1003 and have its own data processors re-type the data into its own processing software. This two step process requires double entry of data, first on the broker's end and then on the lender's end. Not only does this double entry take additional time and labor, but it also creates the opportunity for inaccurate transcribing of data. In the end, the broker would still have to mail the original signed hardcopy 1003 to the lender.
Companies that permit the on-line submission of loan applications are, for example, E-Loan, IMX Exchange, Fannie Mae and Freddie Mac, and the lender's own websites. E-Loan is an on-line broker. It markets its website to consumers, who then complete on-line applications, which E-Loan in many circumstances forwards to lenders for pre-qualification and conditional approval. E-Loan does not provide brokers with a mechanism to obtain wholesale rate sheets, or submit loan applications to the lenders with which they are approved. IMX Exchange is an auction site that permits brokers to complete on-line loan applications or forward digitally formatted loan applications from their loan processing software to IMX Exchange. IMX Exchange then notifies participating lenders that can review the submitted loan application and bid on the loan. The highest bidding lender then needs to contact the broker to complete the loan application process. Fannie Mae and Freddie Mac are Secondary Market Investors that buy loans that lenders have funded, bundle them (called securitizing the loans), and then sell theses “mortgage-backed securities” to the investing public. The loans that Fannie Mae and Freddie Mac purchase must comply with their strict purchasing guidelines, such as loan amount, LTV, credit rating, property type, qualifying ratios, etc. Fannie Mae and Freddie Mac permit brokers to submit digital loan applications either on-line or from broker loan processing software directly to them. Fannie Mae and Freddie Mac can download and port the digital application into their own loan processing and underwriting software. The broker will then receive conditional approval from Fannie Mae and Freddie Mac, stating that they will purchase the loan from a lender who funds it as long as everything stated in the loan application can be substantiated by additional documentation, including appraisal, tax returns, credit report, title insurance, etc. With the conditional approval, the broker then needs to approach a Fannie Mae or Freddie Mac sponsored lender, who then might offer to fund the loan. The Fannie Mae and Freddie Mac process limits the scope of a lender's business because the lender can only sell to Fannie Mae and Freddie Mac loans that satisfy their strict purchasing guidelines. Moreover, Fannie Mae and Freddie Mac do not have a system in place whereby the sponsored lenders can easily distribute their rate sheets to their approved brokers. Once the broker gets conditional approval from Fannie Mae and Freddie Mac, the broker has to go through traditional channels to find sponsored lenders' pricing, and to get the lenders all the supporting documentation for the loan application file.
Underwriting and File Status
As mentioned above, underwriting is the process whereby a lender decides whether a loan application satisfies its lending guidelines before the lender approves and funds the loan. In most all circumstances, a lender must receive not only an original signed 1003, but must receive an original appraisal, credit report, escrow instructions, title report and insurance, other insurance if required such as hazard, private mortgage insurance, mortgage insurance premium or flood insurance, tax returns, W-2s, verification of deposits and employment, and any other document the lender may require. In order to accommodate borrowers, who need to show sellers that they will be able to obtain a loan to purchase the house, lenders issue conditional approvals based on stated information in the loan application. As indicated above, the loan application is generally either faxed or overnighted to the lender, who then re-enters the 1003 data into its own processing software. The lender's underwriter would compare the content of the loan application against its lending guidelines, and then either fax or email a message to the broker that the lender either conditionally approves the loan application, or rejects the application.
If the lender conditionally approves the loan application, the lender would then create a list of all the conditions that must be met by the borrower before the loan is funded. The lender would speak to the broker on the telephone and would send the condition list either via fax or mail courier service. The condition list is constantly being updated as conditions are met. The broker would then have to communicate the list to the applicant on the telephone, or send the condition list via fax or mail courier service.
Completion of Loan Application File
To fund the loan, the lender has to receive all the supporting documents required under the condition list. The borrower, broker, lender, and investor would all need conforming copies of the documents for their own personal records. The broker and the lender normally would have to also take the data from the documents, such as the credit report and appraisal, and re-type the data into their own respective processing software. This process is cumbersome and often results in inaccurate transcribing of data.
As can be well appreciated from the foregoing discussion, there are many complexities and logistics to preparing and processing loan applications. While there have been some attempts toward reducing the time and effort involved in the process, existing systems and methods have problems that need to be addressed.